Knobias ClipReport (7-26-2007)

Submitted from Knobias ClipReport

Wednesday’s session saw the indexes trading in range for the majority of the day as many were worried over the inability of Wall Street to raise the debt financing for Cerberus to buyout Chrysler Corp. The news led many to believe that the leverage buyouts could begin to halt as cheap money was drying up domestically. A weaker than expected existing homes sales number also fueled concerns regarding the market in the face of better than expected earnings numbers from Boeing.

The market’s action during Thursday’s session could certainly be affected by Apple earnings which many traders were eagerly awaiting. AT&T’s earnings earlier in the week gave many a glimpse of what could be on the horizon from iPhone sales though many had disregarded the numbers because the phone was only available for two days in AT&T’s quarter.

Another piece of news that many traders are awaiting deals with Mohawk Indians, a Catskill Casino, and the state of New York.

Empire Resorts Inc. (NYNY) owns and operates the Monticello Gaming & Raceway located in Monticello, NY, about 90 miles northwest of New York City. Monticello Gaming & Raceway operates nearly 1,600 video gaming machines (similar to Las Vegas-style slot machines) and conducts pari-mutuel wagering on live harness horse races.

Part of Monticello Raceway's racing revenue is derived from pari-mutuel wagering at the track and government mandated revenue allocations from certain New York State off-track betting locations. In pari-mutuel wagering, patrons bet against each other rather than against the operator of the facility or with pre-set odds. The dollars wagered form a pool of funds from which winnings are paid based on odds determined by the wagering activity. The racetrack acts as a stakeholder for the wagering patrons and deducts from the amounts wagered a "take-out" or gross commission from which the racetrack pays state and county taxes and racing purses. Monticello Raceway's pari-mutuel commission rates are fixed as a percentage of the total handle or amounts wagered. The Company also engages in the import of simulcasting of thoroughbred and harness horse races and the export of its races to offsite pari-mutuel wagering facilities.

While the industry is highly regulated and much of the total revenue the Company makes is paid to the state of New York in taxes, the Company reported net revenue of $18.4 million for the first quarter of 2007. The revenue was as high as last year’s comparable quarter, but some of the challenges the Company faced could be reversing. One reason for the lowered revenue was increased competition which the Company has responded with increased marketing and advertising initiatives. Another challenge was the split of revenue that went to the state.

Commented David Hanlon, CEO and president, in the Company’s press release, "In addition, we are heartened to see pending legislation in Albany that would improve the split of VLT revenue - essentially providing additional funds for operators to use for marketing and capital improvements. Such legislation would give a much-needed boost to VLT facilities, including ours, and stimulate long-term revenue sharing benefits to New York.”

But even with a possible up turn in legacy operations, the stock is hinging on the piece of news many of its informed investors have been waiting on that is due sometime in the second half of the year. In August of 2005, the Company entered into a letter of agreement with the St. Regis Mohawk Tribe to develop a full scale casino in the Catskills Mountains in New York.

The amount of red tape and legal propositions looks to be nearly complete. The Bureau of Indian Affairs, the State of New York, the Governor of New York, and the Department of the Interior are all required to sign off on the development after numerous economic and environmental studies.

The last piece of red tap needing to be cut included the Secretary of the Interior to approve the request of the tribe to take 29 acres of land into trust to develop and construct the casino of which Empire Resorts would operate.

The plans for the casino include a 160 thousand square foot gaming space, with 9 restaurants, several bars and nightclubs, 5000 parking spaces, a central entertainment lounge, and a 40 thousand square foot multi-function room all adjacent to the Monticello Raceway.

The facility has also garnered LEED (Leadership in Energy and Environmental Design) Green Building Certification mention which notes their attempt to build the first ‘Green’ casino in the Northeast.

While shares during Wednesday’s session hit a 52 week low, investors would be wise to watch for approval from the Dept. of the Interior regarding the land. According to the Company’s latest 10-K, a lawsuit has arisen that is seemingly attempting to block the casino’s development though its basis looks to be just procedural policies that the Bureau of Indian Affairs followed during the approval process. With a quick resolution and the approval by the DOI, shares could see a large amount of attention during the second half of 2007. Investors would be wise to watch.


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